Chinese nuclear firm pleads guilty to U.S. export violations

Wednesday, December 05, 2012

The China Nuclear Industry Huaxing Construction Co., Ltd., a corporate entity owned and operated by the Chinese government, pled guilty Monday to conspiring to violate the International Emergency Economic Powers Act (IEEPA) and the Export Administration Regulations, and other related charges.
It is believed that Huaxing’s plea marks the first time that a Chinese corporate entity has entered a plea of guilty in a U.S. criminal export matter. The case's combined $3 million in criminal and administrative fines represent the U.S. government’s continued determination to pursue substantial monetary penalties for export violations, the Justice Department said.
Nanjing-based Huaxing’s guilty plea is the result of a long-term investigation into illegal exports of high-performance epoxy coatings from the United States to the Chashma II Nuclear Power Plant in Pakistan (Chashma II), which Huaxing was building as part of a nuclear cooperation pact between China and Pakistan. Chashma II is owned by the Pakistan Atomic Energy Commission (PAEC), an entity on the Commerce Department’s Entity List. The investigation was led by the department’s Bureau of Industry and Security.
As part of its plea agreement, Huaxing agreed to the maximum criminal fine of $2 million, $1 million of which will be stayed pending its successful completion of five years of corporate probation. The terms of Huaxing’s probation will require it to implement an export compliance and training program that recognizes Huaxing’s obligation to comply with U.S. export laws.
Through an administrative agreement with the Commerce Department, Huaxing also agreed to pay another $1 million immediately and be subject to multiple third-party audits over the next five years to ensure the efficacy of its compliance with U.S. export laws.
The Justice Department said Huaxing’s guilty plea is related to the December 2010 guilty plea of PPG Paints Trading (Shanghai) Co., Ltd. (PPG Paints Trading), a Chinese subsidiary of Pittsburgh-based PPG Industries, to a four-count information in the U.S. District Court for the District of Columbia. Together, PPG Paints Trading and its parent company, PPG Industries, paid $3.75 million in criminal and administrative fines and more than $32,000 in restitution. In November 2011, Xun Wang, the highest ranking executive at the Chinese PPG subsidiary, pled guilty to conspiracy and agreed to cooperate with the government’s investigation.
According to count one of the information filed with the court, beginning in or about June 2006 through in or about March 2007, Huaxing conspired to export PPG Industries’ high-performance coatings from the United States to Chashma II, via China, without first having obtained the required export license from the Bureau of Industry and Security in violation of the EAR. Chashma II is a PAEC power plant under construction near Kundian, Pakistan.
The PAEC is the science and technology organization in Pakistan responsible for Pakistan’s nuclear program including the development and operation of nuclear power plants in Pakistan. In November 1998, following Pakistan’s first successful detonation of a nuclear device, BIS added PAEC, as well as its subordinate nuclear reactors and power plants, to the list of prohibited end users under the EAR.
As a restricted end-user, a U.S. manufacturer seeking to export, re-export, or transship any items subject to the EAR to PAEC or its nuclear power plants or reactors, would need first to obtain a Commerce Department license.
In January 2006, PPG Industries sought an export license for the shipments of coatings to Chashma II. The Commerce Department denied that license application in June 2006. Following that denial, court documents say, Huaxing agreed on an arrangement whereby the high-performance coatings would be sold to a third-party distributor in China which, in turn, would deliver the coatings to Huaxing for application at Chashma II. The act evaded U.S. export licensing requirements.
Counts two through four of the court papers state Huaxing violated IEEPA and the EAR when it willfully exported, reexported, and transshipped and/or attempted to export, reexport and transship three shipments of the high-performance coatings destined for Chashma II between June 2006 and March 2007 without the required Commerce Department license. The total value of the three illegal exports was about $32,000.